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Merchanting and Current Account Balances

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  • Elisabeth Beusch
  • Barbara Döbeli
  • Andreas M. Fischer
  • Pinar Yesin

Abstract

Merchanting is goods trade that does not cross the border of the firm's country of residence. Merchanting grew strongly in the last decade in several small open economies, particularly in Finland, Ireland, Sweden, and Switzerland, and has become an important driver of these countries' current account. Because merchanting firms reinvest their earnings abroad to expand their international activities, this practice raises national savings in the home country without increasing domestic investment. This results in a significantly large current account surplus. To show the empirical links between merchanting and the current account balance, two exercises are performed in this paper using a sample of 53 countries during 1980-2011. The first exercise estimates the savings impact of merchanting countries in empirical models of the medium-term current account and shows that the presence of merchanting activity in a country indeed increases its current account balance by 3% on average. The second exercise shows that merchanting's impact on the country's current account is sensitive to firm mobility.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2013-06.

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Length: 43 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:snb:snbwpa:2013-06

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Keywords: Merchanting; industry dynamics; current account adjustment;

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  1. Joshua Aizenman, 2007. "Large Hoarding of International Reserves and the Emerging Global Economic Architecture," NBER Working Papers 13277, National Bureau of Economic Research, Inc.
  2. Leland Crane & Meredith Crowley & Saad Quayyum, 2007. "Understanding the evolution of trade deficits: trade elasticities of industrialized countries," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q IV, pages 2-17.
  3. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
  4. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
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  6. Reda Cherif & Fuad Hasanov, 2012. "Oil Exporters' Dilemma," IMF Working Papers, International Monetary Fund 12/4, International Monetary Fund.
  7. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments," IMF Occasional Papers, International Monetary Fund 261, International Monetary Fund.
  8. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(4), pages 500-522, June.
  9. Menzie D. Chinn & Hiro Ito, 2008. "Global Current Account Imbalances: American Fiscal Policy versus East Asian Savings," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 16(3), pages 479-498, 08.
  10. Rudolfs Bems & Robert C. Johnson, 2012. "Value-Added Exchange Rates," NBER Working Papers 18498, National Bureau of Economic Research, Inc.
  11. William R. Cline & John Williamson, 2011. "Estimates of Fundamental Equilibrium Exchange Rates, May 2011," Policy Briefs, Peterson Institute for International Economics PB11-5, Peterson Institute for International Economics.
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